Appeals court cracks open Google AdWords v Rosetta Stone case

Second look at whether keyword ad policy infringed trademark rights

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Google may be liable for direct and contributory trade mark infringement as well as trade mark dilution because of the way it allowed a language learning software company's trademarks to be bought as "keyword advertising" terms by others, a US court has ruled.

The US Court of Appeals overturned (47-page/122KB PDF) a district court's decision to award summary judgment to Google on the infringement and dilution claims and has instead ordered that the issues be examined in more detail by the district court. It upheld the district court's findings that Google is not liable for vicarious trade mark infringement or unjust enrichment.

Rosetta Stone has claimed that Google infringed its rights by allowing others to buy keyword advertising terms, including 'Rosetta Stone', through the internet giant's 'AdWords' system. Google's AdWords operates by allowing companies to buy the right for their ads to appear beside the natural results when certain terms are searched for.

Rosetta Stone has registered trade mark rights for 'Rosetta Stone' and other marks and claims that fake copies of its software have been sold by unauthorised resellers as a result of those businesses buying sponsored links identical or similar to its marks.

Under US trademark law a person claiming that their trade mark rights have been infringed must prove first that they own a valid mark and that the alleged infringer used the mark "in commerce" and without permission. They must also show that the alleged infringer used the mark, or an imitation of it, "in connection with the sale, offering for sale, distribution, or advertising" of goods or services; and that the use was likely to confuse consumers.

Google has not contested the direct infringement claim except in respect of the 'confusion' aspect. The district court, first hearing the case, accepted Google's arguments and rejected claims by Rosetta Stone that Google was liable for this direct infringement of its trade mark. The district court had determined that there was "not a genuine issue of fact as to whether Google's use of 'Rosetta Stone' created a likelihood of confusion".

The Court of Appeals said that Google had changed its AdWords policy in 2009 to enable potential keyword buyers to use trade mark terms in the advertising text in certain circumstances even if they were not the rights holders or had not obtained the rights holders' permission to do so. Overturning the district court, the Court of Appeals said that because of this change it was at least arguable that Google had "intended to cause confusion in that it acted with the knowledge that confusion was very likely to result from its use of the marks".

Therefore the appeals court said the district court was wrong to dismiss the claim in summary judgment.

The district court had also erred because it was "reasonable ... to infer that a great number of" people had been confused into thinking that there was a link between Rosetta Stone and the owners of sponsored links for the term that were in fact promoting counterfeits, the Court of Appeals ruled. In-house studies conducted by Google and a consumer survey also revealed evidence of actual confusion over the use of Rosetta Stone's marks in sponsored links, it said.

The court said that the district court was therefore wrong to dismiss the likelihood of confusion claims on this basis.

Making a summary judgment that consumers were sophisticated enough to differentiate between authentic Rosetta Stone products and unauthorised re-sellers who bought AdWord terms was also a mistake, the Court of Appeals ruled.

"We conclude that there is sufficient evidence in the record to create a question of fact as to consumer sophistication that cannot be resolved on summary judgment," it said. "The record includes deposition testimony from Rosetta Stone customers who purchased counterfeit 'Rosetta Stone' software from sponsored links that they believed to be either affiliated with or authorized by Rosetta Stone to sell genuine software."